Will Keystone XL Ever See The Light Of Day?

Earlier this month, TransCanada said it had secured 20-year commitments for a total 500,000 bpd for the notorious Keystone XL pipeline that should carry Albertan heavy crude to U.S. refineries in the Midwest. The project received the support of the Alberta government as well. And yet TransCanada has not made a final investment decision on the project. Will it ever?

Keystone XL is a controversial project and is only getting more controversial with time as opposition against oil and gas infrastructure in North America grows. In November 2017, a group of environmental organizations claimed an important victory in their battle against the Keystone XL oil pipeline project. A federal judge granted approval for their lawsuit against the presidential administration for its decision to greenlight the project that was vetoed by the previous administration.

Then there’s regulation and permits. So far, TransCanada has cleared all major regulatory hurdles, although the last one proved tricky. After being dumped by the previous U.S. administration and revived last year by President Trump, Keystone XL scored a major win in November: the Nebraska Public Service Commission (PSC) gave the project the go-ahead.

Nebraska’s regulators, however, approved an order for the Mainline Alternative Route for the pipeline out of the three TransCanada had proposed— the other two being the company’s Preferred Route and the Sandhills Alternative Route. Now, TransCanada is reviewing the alternative route, which is longer than the one it prefers, and delaying its final decision.

Even the commitments that the company was so happy about securing may not be good enough. Financial Post’s Geoffrey Morgan recently wrote that while the Keystone XL commitments represent 60 percent of the pipeline’s 830,000-bpd capacity, commitments for another pending project — Kinder Morgan’s Trans Mountain expansion — have reached 80 percent of the future pipeline’s 708,000-bpd capacity. The difference in commitments becomes all the more significant against the background of a Canadian pipeline network that is already panting under the load, which is only going to become greater in the near term.

If that’s not enough to keep TransCanada’s executives nervous, here’s more. Currently, there is a shortage of pipeline capacity in Canada. To date, it stands at some 330,000 bpd, but by 2019 it is likely to swell to as much as 700,000 bpd. However, this shortage could turn into a surplus if TransCanada builds Keystone XL, Kinder Morgan builds the Trans Mountain expansion, and Enbridge completes the replacement of its Line 3 pipeline.

Apparently, the capacity shortage will be a temporary problem, and in about five or six years there will be no need for all three pipelines, of which Keystone XL seems the most controversial. There have been warnings that it may be obsolete before it is even built, and that there is no need for it anymore, as Albertan producers opt for rail to make up for capacity shortages.

It’s true that Albertan producers have been forced to sell their crude at a major discount. This is hurting them, but if analysts are right, producers will only have to bear this for a few more years. If forecasts that China and India will drive global crude oil demand growth, then Trans Mountain’s expansion would make more economical sense than Keystone XL. Yet that project faces no less opposition. In the end, it will perhaps be the less controversial pipeline that gets built, sending the other to die a natural death.